Startups need ambition to help British manufacturing grow

Senior reporter

Too many of our new technology companies aren’t planning to manufacture in the UK. We need to do more than fund startups if we want to see a new British boom.

Britain is bursting with exciting new technologies. Forty of them, from liquid air-powered engines to fuel made from CO2, were on display at the IMechE this week at the Cleantech Innovate showcase. And all the companies involved were making valiant efforts to overcome that great British problem of turning good ideas into profitable ventures.

The idea that Britain needs to rebalance its economy by growing its manufacturing export sector in order to create wealth and good jobs, has been drummed into us on a daily basis for over four years now. We need more entrepreneurs, we’re told, more investment in startup firms and more government help for new businesses.

All sensible ideas for tackling a genuine problem. However, if this week’s showcase is anything to go by, many technology startups are still struggling to attract the investment they need.

Everyone at the event had their own ideas as to why this is the case: investors and banks are too risk-averse, both since the financial crisis and in British culture in general; there’s a lack of technical expertise among investors and a lack of financial expertise among engineers; there’s too much bureaucracy in government schemes and too few tax incentives to invest in small businesses. One delegate even blamed a lack of ambition on the part of some startup firms to ask for the money they really needed to substantially build their businesses.

But even if the firms at Cleantech Innovate can access the money they need, this wouldn’t necessarily equal the new boom in British manufacturing output and jobs we’re hoping for. Many of the companies’ business plans involved licensing their technology, outsourcing manufacturing to foreign firms, or seeking a corporate buyout rather than building themselves into a big manufacturer.

You can’t necessarily blame companies for taking the non-UK manufacturing route. The nature of their technology and intended markets will help define the best way for them to commercialise and for some products it just wouldn’t make sense to build them here. Talk to ARM, whose chips are in mobile devices all over the world but doesn’t make any itself, or Dyson, a great British engineering success story that shipped its production abroad over ten years ago, and I’m sure they’d give you multiple reasons why these were the right decisions for them.

But there was something rather inspiring about the determination of one company at Cleantech Innovate, Libralato Engines, whose CEO made an explicit point of his desire to bring green manufacturing jobs to deprived parts of the country, and is presumably hoping some investors will respond to this emotional pull.

Other firms told me they would like to manufacture in the UK and plan to start by doing so but that it probably wouldn’t be sustainable in the long term. For many technology firms, Britain has the expertise and the supply chain to develop and build complex products in their early stages but high-volume costs, access to raw materials and the hassle of exporting can make it less attractive as the company expands.

But it often comes back to the issue of funding. Turning a small company into a big one can require huge amounts of capital, which banks just aren’t willing to offer at the moment. We’ve heard time and again that the government is leaning on the banks to get them lending but where’s the proof that it’s working?

I’m also increasingly inclined to believe that Britain is disadvantaged by its lack of a major multinational consumer/industrial technology player to compete with the likes of Siemens, Samsung and GE. If the banks won’t give you the money to expand then why not go to a company who can give you instant access to global reach? Unfortunately this will almost always mean ending up in foreign ownership.

If we want to see Britain increase manufacturing output and jobs on a large scale, and hold onto the wealth created by maintaining domestic ownership, we need to do more than just encourage startups. We need to make sure companies have the ambition and the ability to stay British and that our financial services sector is there to support them, not just make money for itself.